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Item 7. Management’s Discussion and Analysis

2020-12-17 compared with 2019-12-20 · 416 added, 469 removed, 307 unchanged (74% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to facilitate an understanding of the results of operations and financial condition of ABM Industries Incorporated and its subsidiaries (collectively referred to as “ABM,” “we,” “us,” “our,” or the “Company”).

This MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes (“Financial Statements”).

The following MD&A is intended to facilitate an understanding of the results of operations and financial condition of ABM.

This MD&A is provided as a supplement to, and should be read in conjunction with, our Financial Statements.

This MD&A contains both historical and forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.

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Unless otherwise indicated, all information in the MD&A and references to years are based on our fiscal year, which ends on October 31.

Effective November 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) , and ASU 2017-10 , Service Concession Arrangements (Topic 853):

Determining the Customer of the Operation Services , using a modified retrospective approach with a cumulative-effect adjustment to retained earnings as of the beginning of 2019;

Effective November 1, 2019, we adopted ASU 2016-02, Leases (Topic 842) and related amendments, using a modified retrospective approach;

prior period Financial Statements were not adjusted.

Refer to Note 2 , “Basis of Presentation and Significant Accounting Policies,” and Note 3 , “Revenues,” in the Financial Statements for additional information regarding the impact of adoption.

Additionally, refer to “Segment Information” below for information regarding the modification of the presentation of inter-segment revenues and the reorganization of our Healthcare business during 2019.

Refer to Note 2, “Basis of Presentation and Significant Accounting Policies,” and Note 4, “Leases,” in the Financial Statements for additional information regarding the impact of adoption.

Business Overview

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We remain focused on long-term, profitable growth related to both new and existing clients within our industry groups and across our many service lines.

Our revenue strategy is predicated on pursuing new sales and targeting a favorable retention rate among existing contracts.

Our revenue growth strategy is predicated on pursuing new sales and targeting a favorable retention rate among existing contracts.

Cross-selling and up-selling projects and services is also an integral part of our strategy.

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Human Resources and Labor Management

During 2019 we launched our new cloud-based human capital management system as well as a new time and attendance system.

These investments will create a human resources (“HR”) structure that centralizes and standardizes hiring and training practices, fostering a data-driven model to measure key metrics, such as employee retention and labor productivity, to help us make more informed decisions and ultimately manage certain costs.

We have also introduced new tools to help our operators manage labor more efficiently and continue to invest in attracting, developing, and retaining talent.

During 2019 we launched our new cloud-based human capital management system.

This investment will create an HR structure that centralizes and standardizes hiring and training practices to help us make more informed decisions and ultimately manage certain costs.

We have also introduced new tools to help our operators manage labor more efficiently, and we continue to invest in attracting, developing, and retaining talent.

Enterprise Resource Planning

During 2019 we also made progress with the multi-phased deployment of our new enterprise resource planning (“ERP”) system, and in the future we anticipate having a unified system where we can integrate our legacy ABM and our legacy GCA finance environments for the first time.

During 2019 and the first quarter of 2020 we also made progress with the multi-phased deployment of our new ERP system, and in the future we anticipate having a unified system where we can integrate our legacy ABM and our legacy GCA finance environments for the first time.

This newly combined system will streamline the operational and financial execution of our business and lead to more effective decision making in the future.

Due to the Pandemic-related disruptions, the implementation of the new ERP system was temporarily suspended in the second and third quarters of 2020.

In the fourth quarter of 2020, we re-engaged the implementation.

Developments and Trends

Economic Labor Outlook

economy continues to demonstrate positive underlying fundamentals, with expanding gross domestic product growth and improving employment conditions, which have led to historically low levels of both unemployment and underemployment across the country.

These factors have contributed to the lower availability of qualified labor for our business and higher turnover in certain markets, as our employees have more job opportunities both inside and outside our industry.

This in turn has caused, and may continue to cause, higher labor and related personnel costs.

Acquisition of GCA during 2017

On September 1, 2017 (the “Acquisition Date”), we acquired GCA, a provider of integrated facility services to educational institutions and commercial facilities.

Refer to Note 4 , “Acquisitions,” in the Financial Statements for more information on this transaction.

Our consolidated statements of comprehensive income and statements of cash flows include GCA’s results of operations in 2019 and 2018, but exclude GCA’s results of operations in 2017 prior to the Acquisition Date.

COVID-19 Pandemic

COVID-19 has resulted in a worldwide health Pandemic.

To date, COVID-19 has surfaced in nearly all regions around the world and resulted in business slowdowns and shutdowns, as well as global travel restrictions.

We, along with many of our clients, have been impacted by recommendations and/or mandates from federal, state, and local authorities to practice social distancing, to refrain from gathering in groups, and, in some areas, to refrain from non-essential movements outside of homes.

The Pandemic has also created unanticipated circumstances and uncertainty, disruption, and significant volatility in the broader economy.

Refer to “Consolidated Results of Operations” and “Results of Operations by Segment” for additional information related to the impact of the Pandemic on our financial results.

Given the unprecedented and uncertain nature and potential duration of this situation, we cannot reasonably estimate the full extent of the impact the Pandemic will have on our financial condition, results of operations, or cash flows.

The ultimate extent of the effects of the Pandemic on our company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the Pandemic subsides.

Our priority has been and continues to be the health, safety, and support of our employees, our clients, and the communities that we serve.

We have also taken actions to strengthen our liquidity, cash flows, and financial position to help mitigate potential future impacts on our operations and financial performance.

These priorities and measures include, but are not limited to, the following:

Health and Safety of our Employees and Clients

As the Pandemic has developed, we have taken steps to support our employees and clients based on recommendations from various global experts, including the World Health Organization, the Centers for Disease Control and Prevention, the Occupational Safety and Health Administration, and the U.K.

National Health Service.

To help protect our employees and our clients, face masks and other personal protective equipment (“PPE”) are being used by our employees.

We have also encouraged our employees to practice social distancing and wash hands frequently.

Additionally, we transitioned many office-based employees to a remote work environment, suspended non-essential travel, and adopted technologies to allow employees to effectively perform their functions remotely.

Over the past few years, we have focused on consolidating purchasing activities to leverage our scale and identify preferred suppliers.

While we have seen a reduction in the availability of supplies and an increase in costs, our procurement efforts have helped create a positive supply chain for our company and clients during the Pandemic, particularly as city and state mandates on PPE for employees have arisen.

We will continue to monitor our supply chain for potential impacts as future developments unfold.

The Pandemic continues to create a dynamic client environment, and we are working diligently to ensure our clients’ changing staffing and service needs are met.

We are also developing new cleaning initiatives in accordance with various protocols issued by global experts, including deep cleaning services, special project cleaning services, and other work orders.

In April 2020, we announced our EnhancedClean TM Program (“EnhancedClean”), an innovative solution that helps provide clients with healthy spaces.

We designed EnhancedClean under the guidance of experts on infectious diseases and industrial hygiene to help provide our clients with processes that use hospital-grade disinfectants, specialized equipment, and innovative solutions and technology.

These solutions include:

hygiene and safety protocols, utilization of disinfecting procedures and products for high-touch surfaces, employment of PPE, and communication and training protocols.

Expense Management

As we adapted to the changing demand environment resulting from the Pandemic, during 2020 we implemented numerous cost cutting actions, such as:

• Various human capital management actions, including:

temporary pay reductions for executives, certain employees, and our Board of Directors, with full pay reinstated as of August 1, 2020;

temporary furloughs or reduced working hours for certain staff and management employees, most of whom returned to work effective August 1, 2020;

and the temporary suspension of certain benefits, including our 401(k) match, which will be reinstated effective January 1, 2021;

• Actively managing direct labor and related personnel costs, including furloughs or reduced hours for certain service employees in markets significantly impacted by business slowdowns and shutdowns;

• Reducing our planned capital expenditures and operating expenditures for 2020, including the postponement of various technology initiatives (such as implementing our ERP system) that were deemed non-critical to our operations, some of which we re-engaged during the fourth quarter;

and limiting travel and entertainment expenses;

• Reducing our sales expenses and discretionary spending projects across the Company.

Liquidity, Cash Flows, and Financial Position

As of October 31, 2020, we had $394.2 million of cash and cash equivalents, and we had net cash provided by operating activities of $457.5 million during th e year ended October 31, 2020.

We have taken and continue to take actions to help preserve cash, increase liquidity, and strengthen our financial position, including:

• Borrowing approximately $300 million under our line of credit in March 2020, which represented all remaining amounts then available under our Credit Facility, as a precautionary measure to provide increased liquidity and preserve financial flexibility due to uncertainty resulting from the Pandemic (refer to “Liquidity and Capital Resources” for more information).

During the quarter ended July 31, 2020, we repaid substantially all of these amounts borrowed under the revolving line of credit without penalty.

We have not borrowed additionally in the fourth quarter of 2020;

• Amending our Credit Facility on May 28, 2020, to further enhance our financial flexibility as a precautionary measure in response to uncertainty arising from the Pandemic (refer to “Liquidity and Capital Resources” for more information);

• Focusing on collection of client receivables and monitoring the adequacy of our reserves;

• Extending vendor payment terms where possible;

• Utilizing certain governmental relief efforts (as further described below);

• Suspending share repurchases under our share repurchase program.

As a result of the actions taken above, we were able to strengthen our cash flow in fiscal 2020, allowing us to pay down our line of credit borrowings.

As of October 31, 2020, this resulted in a borrowing capacity of $596.6 million, reflecting covenant restrictions.

In addition, we had $394.2 million of cash and cash equivalents, as noted above.

In response to the Pandemic, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on March 27, 2020.

The CARES Act provides various stimulus measures, including several income tax and payroll tax provisions.

Among the payroll tax provisions is the creation of a refundable credit for employee retention and the deferral of certain payroll tax remittances through December 31, 2020, to future years (with 50% of the deferred amount due by December 31, 2021, and the remaining 50% due by December 31, 2022).

We evaluated the impact of business tax provisions in the CARES Act.

The impact of the income tax provisions was not material.

The impact of the payroll tax provisions was the deferral of approximately $101 million of payroll tax as of October 31, 2020.

Additionally, we received grants under the United Kingdom’s job retention scheme to reimburse us for a portion of certain furloughed employees’ salaries.

The Pandemic is an unprecedented situation and is continuously evolving.

Since we cannot predict the duration or scope of the Pandemic, we cannot fully anticipate or reasonably estimate all the ways in which the current global health crisis and financial market conditions could adversely impact our business in 2021 or in the future.

Even after the Pandemic has moderated and the business and social distancing restrictions have eased, we may continue to experience adverse effects on our business, consolidated results of operations, financial position, and cash flows resulting from a recessionary economic environment that may persist.

The Pandemic has had a profoundly negative impact on the public health and safety of the global and American public.

As a result, the global and U.S.

economies continue to experience significant uncertainty.

Gross domestic product has demonstrated considerable volatility since the onset of the Pandemic, contracting to a historic and sudden low during 2020.

The unemployment rate has more than doubled, as well, given the struggling macroeconomic environment.

These factors have led to lower demand for some of our services in certain end-markets.

To date, the Pandemic has impacted and is expected to continue impacting global communities and commerce for the foreseeable future.

Restructuring and Related Costs

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These activities may result in restructuring costs related to employee severance, other project fees, external support fees, lease exit costs, and asset impairment charges.

During 2019, our restructuring activities primarily related to the continued integration of GCA and other initiatives, including standardizing our financial systems and streamlining our operations by migrating and upgrading several key management platforms, such as our human resources information systems, ERP system, and labor management system.

We also continued consolidating our real estate leases.

Severance and other expenses associated with our Healthcare reorganization during 2019 were immaterial.

We expect to incur additional restructuring charges, primarily related to some of our technology initiatives and other project fees, as we continue to consolidate our operational and financial processes.

(in millions)

October 31, 2019

GCA Restructuring and Other Initiatives

Following the acquisition of GCA, during the first quarter of 2018, we initiated a restructuring program to achieve cost synergies and subsequently incurred expenses primarily related to employee severance, the migration and upgrade of several key technology platforms, and the consolidation of certain real estate leases.

Additionally, during 2019, we reorganized our former Healthcare business and incurred immaterial severance expense.

In early 2020, we continued our technology-based modernization efforts, including standardizing our financial systems.

However, due to the Pandemic, the majority of these projects have been temporarily suspended since the second quarter of 2020.

(in millions) October 31, 2020 Cumulative

Employee severance $ 0.3 $ 18.3

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Lease exit costs 2.7 3.4

Total $ 7.6 $ 42.2

Insurance Reserves

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We utilize the results of actuarial studies to estimate our insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years.

The actuarial reviews continue to demonstrate that the changes we have made to our risk management program are positively impacting the frequency and severity of claims.

There is some flattening of claims frequency reductions as compared to prior periods, but the claims management strategies and programs that we have implemented have resulted in better than anticipated improvements in early identification of certain claims that may potentially develop adversely.

The actuarial reviews demonstrate that the changes we have made to our risk management program continue to positively impact the frequency and severity of claims.

The claims management strategies and programs that we have implemented have resulted in improvements.

Furthermore, we continue to adjust our reserves consistent with known fact patterns.

Based on the results of the actuarial reviews performed, we decreased our total reserves for known claims as well as our estimate of the loss amounts associated with IBNR Claims for prior periods by $3.4 million during 2019.

In 2018, we increased our total reserves related to prior year claims by $10.2 million .

Divestiture of Government Services Business During 2017

On May 31, 2017, we completed the sale of our Government Services business for $35.5 million and recorded a pre-tax gain of $1.2 million , which gain is reflected in impairment loss (recovery) on our consolidated statements of comprehensive income.

Prior to the sale of this business, we recorded a $17.4 million impairment recovery to adjust the fair value of certain previously impaired assets to the valuation of the assets as implied by the agreed-upon sales price, less estimated costs to sell.

The reported results for this business are through the date of sale, and future results could include run-off costs.

As this business has been sold and is no longer part of our ongoing operations, we have excluded a discussion of its results for the periods in this report.

Based on the results of the actuarial reviews performed, we decreased our total reserves for known claims as well as our estimate of the loss amounts associated with IBNR Claims by $36.6 million, $30.2 million of which relates to prior years, during 2020.

In 2019, we decreased our total reserves related to prior year claims by $3.4 million.

Key Financial Highlights

Revenues increased by $56.4 million , or 0.9% , during 2019 , as compared to 2018 , primarily due to organic growth in our U.S.

Technical Solutions business, partially offset by the loss of certain accounts across our other industry groups.

Operating profit increased by $69.7 million , or 50.3% , during 2019 , as compared to 2018 .

The increase in operating profit is primarily attributable to higher gross margin, the absence of $26.5 million of impairment charges recognized during 2018, $14.5 million of lower restructuring and related expenses, and a $13.6 million lower self-insurance adjustment related to prior year claims.

We had a provision for taxes of $32.7 million during 2019 , as compared to a benefit from taxes of $8.2 million during 2018 , primarily due to a net discrete tax benefit of $23.2 million in 2018 related to the Tax Cuts and Jobs Act (the “Tax Act”).

• Revenues decreased by $511.0 million, or 7.9%, during 2020, as compared to 2019, primarily due to the impact of Pandemic-related disruptions across our businesses.

Revenues were also impacted by the loss of certain accounts, primarily in our Aviation business and our U.S.

B&I business.

However, this decrease was partially offset by the expansion of certain accounts and new business within B&I, T&M, and Technical Solutions (primarily before Pandemic-related disruptions), as well as by a significant increase in work orders and new services, including EnhancedClean, primarily relating to the Pandemic.

• Operating profit decreased by $112.6 million, or 54.0%, during 2020, as compared to 2019.

The decrease in operating profit is primarily attributable to impairment charges recorded on goodwill and intangible assets totaling $172.8 million due to the adverse impact of market and business conditions resulting from the Pandemic.

The decrease was also driven by account compression resulting from:

Pandemic-related disruptions in certain markets;

a reserve on notes receivable related to a unique, entertainment-related project within Technical Solutions, mainly associated with increasing credit risk resulting from the Pandemic;

an increase in bad debt expense primarily due to specific reserves established for client receivables associated with increasing credit risk in certain industries (including for clients with deteriorating credit ratings and resulting bankruptcies) arising from the Pandemic;

and investments in EnhancedClean, other Pandemic-related projects, and certain corporate initiatives.

These factors were partially offset by:

the management of direct labor and related personnel costs during the Pandemic;

higher margins on work orders and new services, including EnhancedClean, relating to the Pandemic (particularly within B&I and T&M);

the loss of certain lower margin accounts within B&I and Aviation;

a decrease in self-insurance reserves related to adjustments for prior years;

and various human capital management cost reduction measures.

• Our effective tax rate on income from continuing operations was 99.6% for 2020, as compared to 20.4% during 2019, with the increase primarily due to the impairment of non-deductible goodwill during 2020.

• Net cash provided by operating activities of continuing operations was $457.4 million during 2020.

• Dividends of $49.3 million were paid to shareholders, and dividends totaling $0.740 per common share were declared during 2020.

At October 31, 2019 , total outstanding borrowings under our credit facility were $808.4 million , and we had up to $574.2 million of borrowing capacity under our credit facility;

however, covenant restrictions limited our actual borrowing capacity to $406.6 million .

• At October 31, 2020, total outstanding borrowings under our credit facility were $725.3 million, and we had up to $596.6 million of borrowing capacity, reflecting covenant restrictions.

Results of Operations

The Year Ended October 31, 2019 Compared with the Year Ended October 31, 2018

Years Ended October 31,

($ in millions)

Increase / (Decrease)

Years Ended October 31, 2020 vs.

($ in millions) 2020 2019 2018 Increase / (Decrease)

Revenues $ 5,987.6 $ 6,498.6 $ 6,442.2 $ (511.0) (7.9)%

Operating expenses 5,157.0 5,767.5 5,747.4 (610.5) (10.6)%

Gross margin 13.9 % 11.2 % 10.8 % 262 bps

Selling, general and administrative expenses 506.1 452.9 438.0 53.2 11.7%

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Amortization of intangible assets 48.4 58.5 66.0 (10.1) (17.3)%

Impairment loss

Impairment loss 172.8 — 26.5 172.8 NM*

Operating profit 95.7 208.3 138.6 (112.6) (54.0)%

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Interest expense (44.6) (51.1) (54.1) (6.5) (12.8)%

Income from continuing operations before income taxes

Income from continuing operations before

income taxes 53.3 160.2 87.7 (106.9) (66.7)%

Income tax (provision) benefit (53.1) (32.7) 8.2 20.4 62.5%

Income from continuing operations 0.2 127.5 95.9 (127.3) (99.8)%

(Loss) income from discontinued operations, net of taxes

Other comprehensive income (loss)

Interest rate swaps and other

Foreign currency translation

Income (loss) from discontinued operations,

net of taxes 0.1 (0.1) 1.8 0.2 NM*

Net income 0.3 127.4 97.8 (127.1) (99.8)%

Other comprehensive (loss) income

Interest rate swaps (7.6) (22.4) 21.9 14.8 66.1%

Foreign currency translation and other (1.8) 1.6 (4.7) (3.4) NM*

Income tax benefit (provision) 2.4 5.9 (5.9) (3.5) (58.9)%

Comprehensive income

Comprehensive (loss) income $ (6.6) $ 112.5 $ 109.0 $ (119.1) NM*

*Not meaningful

Revenues increased by $56.4 million , or 0.9% , during 2019 , as compared to 2018 .

The increase in revenues was attributable to organic growth, primarily in our U.S.

Technical Solutions business, partially offset by the loss of certain accounts across our other industry groups.

Revenues in 2019 reflect the adoption of Topic 853, which required rent expense of $48.6 million , primarily within Aviation, to be presented as a reduction of revenues versus the comparative period presentation of recording rent expense as an operating expense.

The Year Ended October 31, 2020 Compared with the Year Ended October 31, 2019

Revenues decreased by $511.0 million, or 7.9%, during 2020, as compared to 2019.

The decrease in revenues was primarily due to the impact of Pandemic-related disruptions across our businesses.

Revenues were also impacted by the loss of certain accounts, primarily in our Aviation business and our U.S.

B&I business.

However, this decrease was partially offset by the expansion of certain accounts and new business within B&I, T&M, and Technical Solutions (primarily before Pandemic-related disruptions), as well as a significant increase in work orders and new services, including EnhancedClean, primarily relating to the Pandemic.

Operating Expenses

Operating expenses increased by $20.1 million , or 0.3% , during 2019 , as compared to 2018 .

The increase was partially offset by the reclassification of $48.6 million of rent expense related to the adoption of Topic 853, as noted above.

Operating expenses decreased by $610.5 million, or 10.6%, during 2020, as compared to 2019.

Gross margin increased by 262 bps to 13.9% in 2020 from 11.2% in 2019.

The increase in gross margin was primarily associated with improved margins within our U.S.

B&I business, a lower self-insurance adjustment related to prior year claims, and the impact of Topic 606 within our Technical Solutions business.

The increase in gross margin was primarily associated with the management of direct labor and related personnel costs during the Pandemic;

higher margins on work orders and new services, including EnhancedClean, relating to the Pandemic (primarily within B&I and T&M);

the loss of certain lower margin accounts within B&I and Aviation;

and a decrease in self-insurance reserves related to adjustments for prior years.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $53.2 million, or 11.7%, during 2020, as compared to 2019.

The increase in selling, general and administrative expenses was primarily related to:

an $18.1 million increase in technology investments and related support;

the absence of a $7.0 million reimbursement of previously expensed legal settlement costs received in the prior year;

a $3.9 million reserve established for an anticipated union pension settlement;

the absence of a $3.4 million benefit in the prior year resulting from actuarial evaluations performed on our medical and dental self-insurance plans;

a $2.5 million reserve established for a non-recurring adjustment related to a client account.

The increase in selling, general and administrative expenses was primarily attributable to:

• a $17.6 million reserve on notes receivable related to a unique, entertainment-related project within Technical Solutions, mainly associated with increasing credit risk resulting from the Pandemic;

• a $13.1 million increase related to investments in EnhancedClean, other Pandemic-related projects, and certain corporate initiatives;

• a $12.9 million increase in bad debt expense primarily due to specific reserves established for client receivables associated with increasing credit risk in certain industries (including for clients with deteriorating credit ratings and resulting bankruptcies) arising from the Pandemic;

• an $11.6 million increase in legal costs and settlements;

• a $4.6 million increase in medical and dental insurance expense as a result of actuarial evaluations performed in the year ended October 31, 2020.

This increase was partially offset by:

a $10.3 million decrease in legal settlement costs;

a $4.1 million decrease in compensation and related expenses;

the absence of $2.2 million of acquisition costs incurred in the prior year related to the GCA acquisition.

• the absence of a $3.9 million reserve for an anticipated union pension settlement in the prior year;

• a $3.5 million decrease in compensation and related expenses mainly due to management and staff labor reductions, including wage reductions, employee furloughs, and the suspension of certain benefits such as 401(k) matching, and also due to a decrease in travel and entertainment expenses, partially offset by additional share-based compensation expense.

Restructuring and Related Expenses

Restructuring and related expenses decreased by $3.6 million, or 32.2%, during 2020, as compared to 2019.

The decrease was due to restructuring expenses incurred in the prior year following the acquisition of GCA, primarily severance, partially offset by other restructuring expenses incurred in the current year.

The decrease was primarily due to a decline in severance, other expenses incurred in the prior year related to the GCA integration, and expenses related to our ongoing technology initiatives.

The majority of these initiatives have been temporarily suspended since the second quarter of 2020 due to the Pandemic.

Amortization of Intangible Assets

Amortization of intangible assets decreased by $7.5 million , or 11.3% , during 2019 , as compared to 2018 , primarily related to certain intangible assets being amortized using the sum-of-the-years’-digits method, which results in declining amortization expense over the assets’ useful lives.

Amortization of intangible assets decreased by $10.1 million, or 17.3%, during 2020, as compared to 2019, mainly due to the lower intangible assets balance resulting from the impairment loss recorded in the second quarter of 2020 and to certain intangible assets being amortized using the sum-of-the-years’-digits method, which results in declining amortization expense over the useful lives of the assets.

Impairment Loss

During 2018 , we recorded impairment charges on goodwill and customer relationships related to our U.K.

Technical Solutions business totaling $26.5 million , which primarily reflected the declining operating performance of this business due to adverse impacts of Brexit and the resulting effects on microeconomic conditions in the U.K.

retail sector.

During 2020, we recorded impairment charges on goodwill related to our Education, Aviation, and U.K.

Technical Solutions businesses totaling $163.8 million.

Additionally, we recorded impairment charges on customer relationships related to our Aviation and U.K.

Technical Solutions businesses totaling $9.0 million.

During the second quarter of 2020, these businesses were adversely impacted by the market and business conditions resulting from the Pandemic.

During 2019, we did not record any impairment charges.

Interest Expense

Interest expense decreased by $6.5 million, or 12.8%, during 2020, as compared to 2019, primarily due to lower relative interest rates and lower outstanding borrowing under our credit facility.

Income Taxes from Continuing Operations

During 2019 and 2018 , we had effective tax rates on income from continuing operations of 20.4% and (9.4)% , respectively, resulting in a provision for tax of $32.7 million and a benefit from tax of $8.2 million , respectively.

During 2020 and 2019, we had effective tax rates of 99.6% and 20.4%, respectively, resulting in a provision for tax of $53.1 million and a provision for tax of $32.7 million, respectively.

The effective tax rate for the year ended October 31, 2020, excluding a nondeductible impairment loss of $163.8 million, was 24.4%.

Our effective tax rate for 2020 was also impacted by the following discrete items:

a $5.7 million benefit from true-ups;

a $2.3 million provision related to the Work Opportunity Tax Credit (“WOTC”);

a $2.1 million benefit from energy efficiency incentives;

and a $1.1 million benefit from change of tax reserves.

Our effective tax rate for 2019 was impacted by the following discrete items:

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a $1.6 million benefit from federal true-ups;

a $1.3 million provision related to the Work Opportunity Tax Credit (“WOTC”);

a $1.3 million provision related to WOTC;

a $1.3 million benefit from expiring statutes of limitations;

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and a $0.9 million benefit from research and development credits.

Our effective tax rate for 2018 was impacted by the following discrete items:

a $23.2 million benefit related to the Tax Act enactment;

a $5.8 million benefit from expiring statutes of limitations;

a $3.4 million benefit from the vesting of share-based compensation awards;

a $2.8 million benefit for energy efficient government buildings;

and a $1.0 million provision for certain tax credits, including WOTC.

Interest Rate Swaps and Other

During 2019 , we recognized as a component of our comprehensive income a loss of $22.4 million related to our interest rate swaps, compared to a gain of $21.9 million during 2018 , primarily due to underlying changes in the fair value of the interest rate swaps.

Additionally, we continue to amortize the gain we realized in 2018 from the termination of our prior interest rate swaps from accumulated other comprehensive income (“AOCI”) to interest expense.

During 2019 we amortized $4.1 million , net of taxes of $1.5 million , of that gain compared to $1.8 million , net of taxes of $0.7 million , amortized during 2018.

Foreign Currency Translation

During 2019 , we recognized as a component of our comprehensive income a foreign currency translation gain of $1.6 million compared to a loss of $4.7 million during 2018 .

Interest Rate Swaps

The unrealized loss on interest rate swaps decreased by $14.8 million, or 66.1%, during the year ended October 31, 2020, as compared to the year ended October 31, 2019, primarily due to underlying changes in the fair value of our interest rate swaps.

Foreign Currency Translation and Other

We had a foreign currency translation loss of $1.8 million during the year ended October 31, 2020 as compared to a foreign currency translation gain of $1.6 million during the year ended October 31, 2019.

This change was due to fluctuations in the exchange rate between the U.S.

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Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of foreign currencies to the USD and the extent of our foreign assets and liabilities.

The Year Ended October 31, 2019 Compared with the Year Ended October 31, 2018

For a comparison of our Results of Operations for the year ended October 31, 2019 to the year ended October 31, 2018, see “Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended October 31, 2019, filed with the SEC on December 20, 2019.

Segment Information

Our current reportable segments consist of Business & Industry (“B&I”), Aviation, Technology & Manufacturing (“T&M”), Education, and Technical Solutions.

Effective November 1, 2018, we modified the presentation of inter-segment revenues, which are recorded at cost with no associated intercompany profit or loss and are eliminated in consolidation.

Additionally, during the third quarter of 2019, we made changes to our operating structure to better align the services and expertise of our Healthcare business with our other industry groups, allowing us to leverage our existing branch network to support the long-term growth of this business.

As a result, our former Healthcare portfolio is now included primarily in our B&I segment.

Our prior period segment data has been reclassified to conform with our current period presentation.

These changes had no impact on our previously reported consolidated financial statements.

Our current reportable segments consist of B&I, T&M, Education, Aviation, and Technical Solutions.

Financial Information for Each Reportable Segment

Years Ended October 31,

($ in millions)

Increase / (Decrease)

Years Ended October 31, 2020 vs.

($ in millions) 2020 2019 2018 Increase / (Decrease)

Business & Industry $ 3,157.8 $ 3,251.4 $ 3,268.4 $ (93.6) (2.9)%

Technology & Manufacturing 956.0 917.0 925.4 39.0 4.3%

Education 808.8 847.4 856.7 (38.6) (4.6)%

Aviation 680.9 1,017.3 1,038.7 (336.4) (33.1)%

Technical Solutions 506.6 593.2 500.1 (86.6) (14.6)%

Elimination of inter-segment revenues (122.4) (127.7) (147.1) 5.3 4.2%

$ 5,987.6 $ 6,498.6 $ 6,442.2 $ (511.0) (7.9)%

Operating profit (loss)

Business & Industry $ 253.7 $ 182.3 $ 157.9 $ 71.4 39.2%

Operating profit margin

Operating profit margin 8.0 % 5.6 % 4.8 % 243 bps

Technology & Manufacturing 84.4 72.5 67.4 11.9 16.5%

Operating profit margin

Operating profit margin 8.8 % 7.9 % 7.3 % 93 bps

Education (41.1) 39.0 44.1 (80.1) NM*

Operating profit margin (5.1) % 4.6 % 5.1 % (969) bps

Aviation (59.6) 21.1 23.2 (80.7) NM*

Operating profit margin (8.7) % 2.1 % 2.2 % NM*

Technical Solutions 9.5 55.4 21.8 (45.9) (82.9)%

Operating profit margin

Government Services

Operating profit margin

Adjustment for income from unconsolidated affiliates, included in Aviation

Adjustment for tax deductions for energy efficient government buildings, included in Technical Solutions

Operating profit margin 1.9 % 9.3 % 4.4 % (747) bps

Government Services (0.1) (0.1) (0.8) — NM*

Operating profit margin NM* NM* NM* NM*

Corporate (146.9) (159.0) (168.8) 12.1 7.6%

Adjustment for income from unconsolidated

affiliates, included in Aviation (2.2) (3.0) (3.2) 0.8 27.4%

Adjustment for tax deductions for energy

efficient government buildings, included in

Technical Solutions (2.1) 0.1 (2.8) (2.2) NM*

$ 95.7 $ 208.3 $ 138.6 $ (112.6) (54.0)%

*Not meaningful

The Year Ended October 31, 2020 Compared with the Year Ended October 31, 2019

Business & Industry

Years Ended October 31,

($ in millions)

(Decrease) / Increase

($ in millions) 2020 2019 (Decrease) / Increase

Revenues $ 3,157.8 $ 3,251.4 $ (93.6) (2.9)%

Operating profit 253.7 182.3 71.4 39.2%

Operating profit margin

Operating profit margin 8.0 % 5.6 % 243 bps

B&I revenues decreased by $93.6 million, or 2.9%, during 2020, as compared to 2019.

The decrease was primarily attributable to the loss of certain accounts in our U.S.

business, including the exit from certain lower margin or underperforming accounts, and a negative impact from fluctuations in foreign currency exchange rates related to our U.K.

The decrease was partially offset by organic growth, including the targeted expansion of certain key clients within our U.S.

business and the expansion of a contract that started in 2018 in our U.K.

The decrease was primarily attributable to account compression resulting from Pandemic-related disruptions in certain markets within both our U.S.

businesses and the loss of certain accounts in our U.S.

business, including the exit from certain lower margin or underperforming accounts that occurred primarily towards the end of the prior year.

The decrease was partially offset by:

the targeted expansion of certain key clients and new business within our U.S.

an increase in work orders and other services, including EnhancedClean (primarily relating to the Pandemic);

and net new business in our U.K.

Management reimbursement revenues for this segment totaled $221.4 million and $283.1 million during 2020 and 2019, respectively.

1 unchanged sentence

Operating profit margin increased by 243 bps to 8.0% in 2020 from 5.6% in 2019.

The increase in operating profit margin was primarily associated with the exit from certain lower margin or underperforming accounts in our U.S.

business, improvements in our labor management processes, and a decrease in unemployment taxes in certain states.

This increase was partially offset by a provision for the settlement of a union health and welfare benefits audit.

While labor challenges are present in certain areas of our B&I business, it is our most mature business and has the highest proportion of unionized labor.

Years Ended October 31,

($ in millions)

Operating profit

Operating profit margin

Aviation revenues decreased by $21.4 million , or 2.1% , during 2019 , as compared to 2018 .

The decrease in revenues primarily related to the adoption of Topic 853, which required rent expense of $46.8 million to be presented as a reduction of revenues versus the comparative period presentation of recording rent expense as an operating expense.

Overall, revenues were positively impacted by organic growth, primarily new contract wins in our U.K.

business, as well as the expansion of catering logistics accounts in our U.S.

However, this growth was partially offset by the loss of certain passenger services, facility services, and cabin cleaning accounts, as well as a negative impact from fluctuations in foreign currency exchange rates related to our U.K.

Management reimbursement revenues for this segment totaled $95.5 million and $99.9 million during 2019 and 2018 , respectively.

Operating profit decreased by $2.1 million , or 8.9% , during 2019 , as compared to 2018 .

Operating profit margin decreased by 15 bps to 2.1% in 2019 from 2.2% in 2018 .

This decrease in operating profit margin was primarily attributable to operational issues on certain accounts, including higher labor costs due to a tight labor market, partially offset by higher margins on certain new contracts, including contract wins in our U.K.

The increase in operating profit margin was primarily associated with higher margins on work orders and higher margins on certain accounts in both our U.S.

businesses, driven by the management of direct labor and related personnel costs during the Pandemic.

The increase was also driven by the exit from certain lower margin or underperforming accounts in our U.S.

The increase was partially offset by account compression resulting from Pandemic-related disruptions in certain markets and higher reserves established for client receivables mainly associated with increasing credit risk in certain industries resulting from the Pandemic.

Technology & Manufacturing

Years Ended October 31,

($ in millions)

(Decrease) / Increase

($ in millions) 2020 2019 Increase

Revenues $ 956.0 $ 917.0 $ 39.0 4.3%

Operating profit 84.4 72.5 11.9 16.5%

Operating profit margin

T&M revenues decreased by $8.4 million , or 0.9% , during 2019 , as compared to 2018 .

The decrease was primarily attributable to the loss of certain accounts, partially offset by the expansion of existing accounts and new business.

Operating profit margin 8.8 % 7.9 % 93 bps

T&M revenues increased by $39.0 million, or 4.3%, during 2020, as compared to 2019.

The increase was primarily attributable to:

an increase in work orders and other services, including EnhancedClean (primarily relating to the Pandemic);

new business;

and the expansion of certain accounts.

The increase was partially offset by the loss of certain accounts.

Operating profit increased by $11.9 million, or 16.5%, during 2020, as compared to 2019.

Operating profit margin increased by 93 bps to 8.8% in 2020 from 7.9% in 2019.

The increase in operating profit margin was primarily attributable to improved margins on certain accounts and the loss of a low margin account in the prior year, partially offset by specific reserves established for client receivables.

The increase in operating profit margin was primarily attributable to higher margins on work orders and lower amortization of intangible assets, all partially offset by higher reserves established for client receivables mainly associated with increasing credit risk resulting from the Pandemic and by the loss of certain higher margin accounts that occurred in the prior year.

Years Ended October 31,

($ in millions)

Operating profit

Operating profit margin

($ in millions) 2020 2019 Decrease

Revenues $ 808.8 $ 847.4 $ (38.6) (4.6)%

Operating (loss) profit (41.1) 39.0 (80.1) NM*

Operating margin (5.1) % 4.6 % (969) bps

Education revenues decreased by $38.6 million, or 4.6%, during 2020, as compared to 2019.

The decrease was attributable to the loss of certain accounts, partially offset by new business, including the expansion of certain accounts that primarily occurred in the current year.

Operating profit decreased by $5.1 million , or 11.4% , during 2019 , as compared to 2018 .

Operating profit margin decreased by 54 bps to 4.6% in 2019 from 5.1% in 2018 .

The decrease in operating profit margin was primarily attributable to changes in contract mix due to the loss of certain accounts and an increase in direct labor and related personnel costs on certain accounts driven by a challenging labor environment.

The decrease was partially offset by the management of overhead and selling, general and administrative expenses due to the timing of certain synergies and lower reserves established for client receivables, including collections of previously written off receivables.

Technical Solutions

Years Ended October 31,

($ in millions)

Operating profit

Operating profit margin

Technical Solutions revenues increased by $93.1 million , or 18.6% , during 2019 , as compared to 2018 .

The increase was primarily attributable to growth in our U.S.

business related to bundled energy solutions (“BES”) projects and power projects, partially offset by the contraction of certain accounts in our U.K.

business and a negative impact from fluctuations in foreign currency exchange rates related to our U.K.

Operating profit increased by $33.6 million during 2019 , as compared to 2018 .

Operating profit margin increased by 497 bps to 9.3% in 2019 from 4.4% in 2018 .

The increase in operating profit margin was primarily attributable to the absence of impairment charges on goodwill and customer relationships related to our U.K.

business totaling $26.5 million during 2018 .

The increase in operating profit margin was also due to the contribution of higher project revenues in our U.S.

business, lower sales commission expense in the current year due to the deferral of commissions following the adoption of Topic 606, and lower amortization expense following the impairment recognized in our U.K.

business at the end of 2018.

The increase was partially offset by a higher volume of lower margin power projects in our U.S.

business in the current year compared to higher margin BES projects in the prior year, the loss of certain higher margin contracts in our U.K.

business, and the absence of tax deductions taken in the prior year for energy efficient government buildings.

Years Ended October 31,

($ in millions)

Corporate expenses

Corporate expenses decreased by $9.8 million , or 5.8% , during 2019 , as compared to 2018 .

The decrease in corporate expenses was primarily related to:

a $14.5 million decrease in restructuring and related expenses as a result of restructuring expenses incurred in the prior year following the acquisition of GCA, partially offset by other restructuring expenses incurred in the current year;

a $13.6 million lower adjustment to self-insurance reserves related to prior year claims;

an $11.3 million decrease in legal settlement costs;

the absence of $2.2 million of acquisition costs related to the GCA acquisition incurred in the prior year;

$1.1 million lower compensation and related expenses.

This decrease was partially offset by:

an $18.1 million increase in technology investments and related support;

the absence of a $7.0 million reimbursement of previously expensed legal settlement costs received in the prior year;

a $3.9 million reserve established for an anticipated union pension settlement;

the absence of a $3.4 million benefit in the prior year resulting from actuarial evaluations performed on our medical and dental self-insurance plans;

a $2.5 million reserve established for a non-recurring adjustment related to a client account.

The Year Ended October 31, 2018 Compared with the Year Ended October 31, 2017

Years Ended October 31,

($ in millions)

Increase / (Decrease)

Operating expenses

Selling, general and administrative expenses

Restructuring and related expenses

Amortization of intangible assets

Impairment loss (recovery)

Operating profit

Income from unconsolidated affiliates

Interest expense

Income from continuing operations before income taxes

Income tax benefit (provision)

Income from continuing operations

Income (loss) from discontinued operations, net of taxes

Other comprehensive income (loss)

Interest rate swaps and other

Foreign currency translation

Income tax provision

Comprehensive income

*Not meaningful

Revenues increased by $988.6 million , or 18.1% , during 2018 , as compared to 2017 .

The increase in revenues was primarily attributable to $858.1 million of incremental revenues from acquisitions, mainly GCA, as well as organic growth in B&I, T&M, Technical Solutions, and Aviation.

This increase was partially offset by the sale of our Government Services business on May 31, 2017.

Operating Expenses

Operating expenses increased by $866.2 million , or 17.7% , during 2018 , as compared to 2017 .

The increase was primarily attributable to $763.1 million of incremental operating expenses from the GCA acquisition and an increase in wages and related personnel costs due to a tight labor market.

Gross margin increased by 29 bps in 2018 , as compared to 2017 .

The increase in gross margin was primarily associated with a lower self-insurance adjustment related to prior year claims as a result of actuarial studies, favorable margins in our U.S.

Technical Solutions business, and the termination of an unprofitable Aviation contract in the third quarter of 2017 , all partially offset by lower profit margins on certain B&I accounts.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $1.4 million , or 0.3% , during 2018 , as compared to 2017 .

The increase in selling, general and administrative expenses was primarily related to:

$32.9 million of incremental expenses related to the GCA acquisition;

a $6.4 million increase in technology investments and related support;

the absence of a $3.2 million reimbursement of previously expensed fees associated with a concluded internal investigation into a foreign entity formerly affiliated with a joint venture during the prior year;

a $3.2 million increase in expenses related to certain incentive plans due to the timing of awards.

This increase was partially offset by:

the absence of $24.2 million of transaction expenses related to the GCA acquisition;

a $3.4 million adjustment to decrease our medical and dental insurance reserves as a result of actuarial evaluations performed in 2018;

a $2.7 million decrease in rental expense due to office consolidations in the prior year;

a $2.5 million decrease in travel and entertainment expenses;

a $2.1 million decrease in legal settlement costs, net of a $7.0 million reimbursement of previously expensed legal settlement costs;

$1.9 million of lower compensation and related expenses;

a $1.5 million decrease in bad debt expense.

Restructuring and Related Expenses

Restructuring and related expenses increased by $4.8 million , or 23.1% , during 2018 , as compared to 2017 , as a result of restructuring related to the GCA acquisition, partially offset by the completion of our 2020 Vision organizational realignment.

Amortization of Intangible Assets

Amortization of intangible assets increased by $34.4 million , during 2018 , as compared to 2017 , as a result of the amortization of acquired intangible assets associated with the GCA acquisition.

Impairment Loss (Recovery)

During 2018, we recorded impairment charges on goodwill and customer relationships related to our U.K.

retail sector.

On May 31, 2017, we sold our Government Services business for $35.5 million.

Based on the initial offer of $35.0 million received during the second quarter of 2017, we recorded a $17.4 million impairment recovery to adjust the fair value of certain previously impaired assets.

In connection with the sale, we recorded a pre-tax gain of approximately $1.2 million during the third quarter of 2017 due to a working capital settlement.

Interest Expense

Interest expense increased by $34.9 million during 2018 , as compared to 2017 , primarily related to increased indebtedness incurred to fund the GCA acquisition and higher relative interest rates under our credit facility, partially offset by amortization of $2.5 million related to the interest rate swap gain.

Income Taxes from Continuing Operations

Our effective tax rates on income from continuing operations during 2018 and 2017 were (9.4)% and 10.1% , respectively.

Our effective rate for 2018 was impacted by the following discrete items:

a $23.2 million benefit related to the Tax Act enactment;

a $5.8 million benefit from expiring statutes of limitations;

a $3.4 million benefit from the vesting of share-based compensation awards;

a $2.8 million benefit for energy efficient government buildings;

and a $1.0 million provision for certain tax credits, including WOTC.

Our effective rate for 2017 was impacted by the following discrete items:

a $17.8 million benefit from expiring statutes of limitations for uncertain tax positions;

a $3.6 million benefit from the vesting of share-based compensation awards;

a $1.9 million benefit for energy efficient government buildings;

and the 2017 WOTC for new hires.

Discontinued Operations, Net of Taxes

During 2018 , we had income from discontinued operations, net of taxes, of $1.8 million , compared with a loss from discontinued operations, net of taxes, of $74.3 million during 2017, a change of $76.1 million .

This change was due to an insurance reimbursement on a legal settlement and collection of previously written off receivables, partially offset by union audit settlements during 2018 , compared with a legal reserve established in the prior year in connection with certain legal settlement agreements.

Interest Rate Swaps and Other

During April 2018 , we elected to terminate all of our interest rate swaps for cash proceeds of $25.9 million.

The resulting gain is being amortized from AOCI to interest expense over the term of our Credit Facility.

Foreign Currency Translation

During 2018 , we recognized as a component of our comprehensive income a foreign currency translation loss of $4.7 million compared to a gain of $9.7 million during 2017 .

This change was related to the USD strengthening against the GBP during 2018 .

Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of foreign currencies to the USD and the extent of our foreign assets and liabilities.

Segment Information

Financial Information for Each Reportable Segment

Years Ended October 31,

($ in millions)

Increase / (Decrease)

Business & Industry

Technology & Manufacturing

Technical Solutions

Government Services

Elimination of inter-segment revenue

Operating profit (loss)

Business & Industry

Operating profit margin

Technology & Manufacturing

Operating profit margin

Technical Solutions

Operating profit margin

Government Services

Operating profit margin

Adjustment for income from unconsolidated affiliates, included in Aviation and Government Services

Adjustment for tax deductions for energy efficient government buildings, included in Technical Solutions

*Not meaningful

Business & Industry

Years Ended October 31,

($ in millions)

Increase / (Decrease)

Operating profit (1)

Operating profit margin

(1) 2018 and 2017 include $7.9 million and $1.5 million , respectively, of amortization expense related to the GCA acquisition.

B&I revenues increased by $329.0 million , or 11.2% , during 2018 , as compared to 2017 .

The increase was primarily attributable to incremental revenues of $155.1 million from the GCA acquisition and to organic net new business, primarily new contract wins in the United Kingdom, as well as targeted expansion of key clients within the United States.

Management reimbursement revenues for this segment totaled $276.6 million and $252.9 million during 2018 and 2017 , respectively.

Operating profit increased by $11.3 million , or 7.7% , during 2018 , as compared to 2017 .

Operating profit margin decreased by 16 bps to 4.8% in 2018 from 5.0% in 2017 .

Operating profit margin was negatively impacted by lower margins on certain accounts and an increase in amortization expense related to the GCA acquisition, partially offset by the management of selling, general and administrative expenses and higher margins on certain accounts.

While labor challenges are present in certain areas of our B&I business, it is our most mature business and has the highest proportion of unionized labor.

The decrease was attributable to compression of certain accounts, mainly resulting from Pandemic-related school closures.

Education had an operating loss of $41.1 million during 2020, as compared to an operating profit of $39.0 million during 2019.

Operating margin decreased by 969 bps to (5.1)% in 2020 from 4.6% in 2019.

The decrease in operating profit margin was primarily attributable to goodwill impairment charges of $99.3 million due to the adverse

impact of market and business conditions resulting from the Pandemic and to higher reserves established for client receivables mainly associated with increasing credit risk resulting from the Pandemic.

The decrease was partially offset by the management of direct labor and related personnel costs during Pandemic-related school closures, lower amortization of intangible assets, and higher margins on work orders relating to the Pandemic.

Years Ended October 31,

($ in millions)

Increase / (Decrease)

Operating profit

Operating profit margin

Aviation revenues increased by $35.7 million , or 3.6% , during 2018 , as compared to 2017 .

The increase was primarily attributable to higher management reimbursement revenue and organic growth in catering logistics, cabin cleaning, and transportation services, as well as incremental revenues of $14.5 million from the GCA acquisition.

This increase was partially offset by the loss of certain passenger services, facility services, and janitorial accounts.

($ in millions) 2020 2019 Decrease

Revenues $ 680.9 $ 1,017.3 $ (336.4) (33.1)%

Operating (loss) profit (59.6) 21.1 (80.7) NM*

Operating margin (8.7) % 2.1 % NM*

Aviation revenues decreased by $336.4 million, or 33.1%, during 2020, as compared to 2019.

The decrease was primarily attributable to travel restrictions and a dramatic decline in passenger demand resulting from the Pandemic.

Significant volume reductions impacted cabin cleaning, parking, janitorial, passenger services, transportation, and catering accounts.

In addition, we lost certain cabin cleaning and passenger services accounts primarily in the prior year.

The decrease was partially offset by Pandemic-related cleaning services.

Management reimbursement revenues for this segment totaled $74.3 million and $95.5 million during 2020 and 2019, respectively.

Operating profit increased by $0.2 million , or 0.5% , during 2018 , as compared to 2017 .

Operating profit margin decreased by 7 bps to 2.2% in 2018 from 2.3% in 2017 .

This decrease in operating profit margin was primarily attributable to lower margins and operational pressures on certain accounts and a provision for the settlement of a union wage and benefits audit.

The decrease was mostly offset by the termination of an unprofitable contract in the third quarter of 2017.

Technology & Manufacturing

Years Ended October 31,

($ in millions)

Operating profit (1)

Operating profit margin

(1) 2018 and 2017 include $10.6 million and $1.9 million , respectively, of amortization expense related to the GCA acquisition.

T&M revenues increased by $227.3 million , or 32.6% , during 2018 , as compared to 2017 .

The increase was primarily attributable to incremental revenues from the GCA acquisition of $198.1 million , expansion of existing accounts, and net new business.

Operating profit increased by $18.8 million , or 38.7% , during 2018 , as compared to 2017 .

Operating profit margin increased by 32 bps to 7.3% in 2018 from 7.0% in 2017 .

Operating profit margin was positively impacted by certain higher margin acquired contracts, partially offset by higher amortization expense related to the GCA acquisition and an increase in wages and related personnel costs in certain markets.

Years Ended October 31,

($ in millions)

Operating profit (1)

Operating profit margin

*Not meaningful

(1) 2018 and 2017 include $26.4 million and $4.6 million , respectively, of amortization expense related to the GCA acquisition.

Education revenues increased by $487.9 million during 2018 , as compared to 2017 .

The increase was primarily attributable to incremental revenues from the GCA acquisition of $488.0 million .

Operating profit increased by $26.7 million during 2018 , as compared to 2017 .

Operating profit margin increased by 42 bps to 5.1% in 2018 from 4.7% in 2017 .

The increase in operating profit margin was primarily due to certain higher margin contracts and the reversal of certain reserves, partially offset by higher amortization expense related to the GCA acquisition and an increase in wages and related personnel costs in certain markets.

Aviation had an operating loss of $59.6 million during 2020, as compared to an operating profit of $21.1 million during 2019.

Operating margin decreased to (8.7)% during 2020, from 2.1% during 2019.

This decrease in operating profit margin was primarily attributable to impairment charges of $55.5 million on goodwill and $5.6 million on customer relationships due to the adverse impact of market and business conditions resulting from the Pandemic.

Operating margin was also negatively impacted by Pandemic-related volume reductions and higher reserves established for client receivables mainly associated with increasing credit risk resulting from the Pandemic.

Operating margin was positively impacted by the management of direct labor and related personnel costs during the Pandemic, higher margins on work orders, and the loss of lower margin cabin cleaning and passenger service accounts in the prior year.

Technical Solutions

Years Ended October 31,

($ in millions)

Increase / (Decrease)

($ in millions) 2020 2019 Decrease

Revenues $ 506.6 $ 593.2 $ (86.6) (14.6)%

Operating profit 9.5 55.4 (45.9) (82.9)

Operating profit margin

Technical Solutions revenues increased by $26.7 million , or 5.6% , during 2018 , as compared to 2017 .

The increase was primarily attributable to higher BES project revenues in our U.S.

business due to the timing of new projects.

Operating profit decreased by $ 17.6 million , or 44.6% , during 2018 , as compared to 2017 .

Operating profit margin 1.9 % 9.3 % (747) bps

Technical Solutions revenues decreased by $86.6 million, or 14.6%, during 2020, as compared to 2019.

The decrease was primarily attributable to a lower volume of projects in both our U.S.

businesses due to Pandemic-related disruptions beginning in the second quarter of 2020 as well as to the loss of certain accounts in our U.K.

business that primarily occurred during the prior year.

The decrease was partially offset by growth in our U.S.

business related to bundled energy solutions projects and power projects prior to Pandemic-related disruptions.

Operating profit decreased by $45.9 million during 2020, as compared to 2019.

Operating profit margin decreased by 747 bps to 1.9% in 2020 from 9.3% in 2019.

The decrease in operating profit margin was primarily attributable to impairment charges on goodwill and customer relationships related to our U.K.

business totaling $26.5 million during 2018, as well as the loss of certain higher margin contracts in our U.K.

business, partially offset by favorable margins on certain projects in our U.S.

business and higher tax deductions for energy efficient government building projects.

The decrease in operating profit margin was primarily attributable to a $17.6 million reserve on notes receivable related to a unique, entertainment-related project, mainly associated with increasing credit risk resulting from the Pandemic.

In addition, the decrease was due to impairment charges of $9.0 million on goodwill and $3.4 million on customer relationships related to our U.K.

business due to the adverse impact of market and business conditions resulting from the Pandemic.

In addition, during the current year we were negatively impacted by:

revenue compression resulting from Pandemic-related disruptions;

higher commissions expense due to the amortization of commissions that were capitalized in the prior year;

and the loss of certain higher margin contracts in our U.K.

The decrease was partially offset by the management of project related expenses, management and staff employee furloughs, and lower amortization of intangible assets.

Years Ended October 31,

($ in millions)

($ in millions) 2020 2019 Decrease

Corporate expenses $ 146.9 $ 159.0 $ (12.1) (7.6)%

1 unchanged sentence

The decrease in corporate expenses was primarily related to:

the absence of $24.2 million of transaction expenses related to the GCA acquisition;

an $11.8 million lower adjustment to self-insurance reserves related to prior year claims;

a $3.4 million adjustment to decrease our medical and dental insurance reserves as a result of actuarial evaluations performed in 2018;

a $2.0 million decrease in legal settlement costs, net of a $7.0 million reimbursement of previously expensed legal settlement costs.

• a $26.8 million decrease in self-insurance reserve adjustments, related to prior years, as a result of actuarial evaluations completed in the year ended October 31, 2020;

• the absence of a $3.9 million reserve for an anticipated union pension settlement in the prior year;

• a $3.6 million decrease in restructuring and related expenses due to a decline in severance, other expenses incurred in the prior year related to the GCA integration, and a decrease in expenses related to our ongoing technology initiatives.

The majority of these initiatives have been temporarily suspended since the second quarter of 2020 due to the Pandemic.

This decrease was partially offset by:

a $6.4 million increase in technology investments and related support;

a $4.8 million increase in restructuring and related costs as a result of the GCA acquisition;

a $3.2 million increase in expenses related to certain incentive plans due to the timing of awards;

$1.5 million higher compensation and related expenses primarily related to hiring additional personnel to support our 2020 Vision initiatives, as well as incremental expenses related to the GCA acquisition.

• a $9.1 million increase in legal costs and settlements;

• an $8.5 million increase related to investments in EnhancedClean, other Pandemic-related projects, and certain corporate initiatives;

• a $4.6 million increase in medical and dental insurance expenses as a result of actuarial evaluations performed in the current year.

The Year Ended October 31, 2019 Compared with the Year Ended October 31, 2018

For a comparison of our Segment Information for the year ended October 31, 2019, to the year ended October 31, 2018, see “Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended October 31, 2019, filed with the SEC on December 20, 2019.

Liquidity and Capital Resources

2 unchanged sentences

As such, we project our anticipated cash requirements as well as cash flows generated from operating activities to meet those needs.

In addition to normal working capital requirements, we anticipate that our short- and long-term cash requirements will include funding legal settlements, insurance claims, dividend payments, capital expenditures, and continued systems and technology transformation initiatives.

We anticipate long-term cash uses may also include strategic acquisitions and share repurchases.

In addition to normal working capital requirements, we anticipate that our short- and long-term cash requirements will include funding legal settlements, insurance claims, dividend payments, capital expenditures, share repurchases, and continued systems and technology transformation initiatives.

We anticipate long-term cash uses may also include strategic acquisitions.

On a long-term basis, we will continue to rely on our Credit Facility for any long-term funding not provided by operating cash flows.

We believe that the Pandemic has had, and will likely continue to have, an adverse impact on our consolidated financial position, results of operations, and cash flows.

It is also possible that our accounts receivable cash collections will be adversely impacted by our clients’ Pandemic-related challenges.

We have taken and continue to take certain steps to preserve liquidity, including:

temporary pay reductions with full pay reinstated as of August 1, 2020;

temporary furloughs or working hour reductions for certain staff and management employees, most of whom returned to work effective August 1, 2020;

and the temporary suspension of certain benefits.

We have also actively managed direct labor and related personnel costs, including:

imposing furloughs or reduced hours for certain service employees in markets significantly impacted by business slowdowns and shutdowns;

reducing our planned capital and operating expenditures and management of other expenses;

and suspending share repurchases under our share repurchase program.

In addition, we continue focusing on collection of customer receivables, monitoring the adequacy of our reserves, and extending vendor payment terms where possible.

We evaluated the business tax provisions of the CARES Act and have deferred remittance of approximately $101 million of payroll tax as of October 31, 2020.

In addition, we are taking certain steps to ensure adequate access to liquidity.

In late March 2020, we borrowed approximately $300 million under our revolving line of credit, which represented all amounts then available under the Credit Facility, as a precautionary measure to provide increased liquidity and preserve financial flexibility due to uncertainty resulting from the Pandemic.

On May 28, 2020, we amended our Credit Facility (the “Amendment”) in order to enhance our financial flexibility, as further described under “Credit Facility” below.

During the quarter ended July 31, 2020, we repaid substantially all of the amounts borrowed under the revolving line of credit without penalty.

We believe that our operating cash flows and borrowing capacity under our Credit Facility are sufficient to fund our cash requirements for the next twelve months.

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However, there can be no assurance that such financing will be available to us should we need it or, if available, that the terms will be satisfactory to us and not dilutive to existing shareholders.

On a long-term basis, we will continue to rely on our credit facility for any long-term funding not provided by operating cash flows.

In addition, we anticipate that future cash generated from operations will be augmented by working capital improvements driven by our 2020 Vision , such as the management of costs through consolidated procurement.

IFM Assurance Company (“IFM”) is a wholly-owned captive insurance company that we formed in 2015.

IFM is part of our enterprise-wide, multi-year insurance strategy that is intended to better position our risk and safety programs and provide us with increased flexibility in the end-to-end management of our insurance programs.

IFM began providing coverage to us as of January 1, 2015.

We had accelerated cash tax savings related to coverage provided by IFM of approximately $6 million in 2019 , $7 million in 2018 , and $10 million in 2017 .

We project accelerated cash tax savings for 2020 to be approximately $6 million .

Credit Facility

On September 1, 2017, we refinanced and replaced our then-existing $800.0 million credit facility with a new senior, secured five-year syndicated credit facility (the “Credit Facility”), consisting of a $900.0 million revolving line of credit and an $800.0 million amortizing term loan, scheduled to mature on September 1, 2022.

In accordance with the terms of the Credit Facility, the line of credit was reduced to $800.0 million on September 1, 2018.

Initial borrowings under the Credit Facility were used to finance, in part, the cash portion of the purchase price related to the GCA acquisition, to refinance certain existing indebtedness of ABM, and to pay transaction costs.

Our ability to draw down available capacity under the Credit Facility, as amended, is subject to, and limited by, compliance with certain financial covenants, including a current maximum leverage ratio of 4.00 to 1.0 that steps down by 25 basis points annually each July to 3.50 to 1.0 by July 2021 and a minimum fixed charge coverage ratio of 1.50 to 1.0 .

Other covenants under the Credit Facility include limitations on liens, dispositions, fundamental changes, investments, and certain transactions and payments.

In accordance with the terms of the Credit Facility, the revolving line of credit was reduced to $800.0 million on September 1, 2018.

In late March 2020, we borrowed approximately $300 million as a precautionary measure to provide increased liquidity and preserve financial flexibility in response to uncertainty resulting from the Pandemic.

This represented all remaining amounts then available under the revolving line of credit.

During the quarter ended July 31, 2020, we repaid substantially all of these amounts borrowed under the revolving line of credit without penalty.

The Amendment modified the financial covenants under the Credit Facility, including:

(i) replacing a maximum total leverage ratio with a maximum total net leverage ratio (allowing for up to $100 million in cash and cash equivalents to be excluded from the calculation of total indebtedness) that varies on a quarterly basis and

adjusted to 6.50 to 1.00 by the quarter ending October 31, 2020, and will adjust back to 4.00 to 1.00 by the quarter ending October 31, 2022;

(ii) modifying the minimum fixed charge coverage ratio on a quarterly basis, which adjusts to 1.25 to 1.00 as of the quarter ending April 30, 2022;

and (iii) adding a minimum liquidity (defined in the Amendment as domestic cash plus available revolving loans) of $250.0 million.

These financial covenants were effective with the quarter ended April 30, 2020.

Our borrowing capacity is subject to, and limited by, compliance with these covenants.

The Amendment changed the interest rate, interest margins, and commitment fees applicable to loans and commitments under the Credit Facility.

It also added a new anti-cash hoarding mandatory prepayment that requires us to repay outstanding revolving loans or swingline loans if, at any time, we have in excess of $250 million of cash and cash equivalents on our balance sheet.

The Amendment made certain additional changes to the negative covenants restrictions under the Credit Facility, including, subject to certain exceptions, restrictions to our ability to make acquisitions, share repurchases, and other defined restricted payments, depending on our total net leverage ratio.

The anti-cash hoarding provision and certain of these restrictions were terminated from the Credit Facility in the fourth quarter of 2020 due to our favorable cash flow position and leverage ratios.

At October 31, 2020, we were in compliance with these covenants and expect to be in compliance in the foreseeable future.

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At October 31, 2020, the total outstanding borrowings under our Credit Facility in the form of cash borrowings and standby letters of credit were $725.3 million and $153.1 million, respectively.

At October 31, 2019 , we had up to $574.2 million of borrowing capacity under the Credit Facility;

however, covenant restrictions limited our actual borrowing capacity to $406.6 million .

At October 31, 2020, we had up to $596.6 million of borrowing capacity, reflecting covenant restrictions.

In July 2017, the U.K.

Financial Conduct Authority, the regulator of the London Interbank Offered Rate (“LIBOR”), indicated that it will no longer require banks to submit rates to the LIBOR administrator after 2021.

Financial Conduct Authority, the regulator of LIBOR, indicated that it will no longer require banks to submit rates to the LIBOR administrator after 2021.

This announcement signaled that the calculation of LIBOR and its continued use could not be guaranteed after 2021.

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growth and expansion, and we do not anticipate remitting such earnings to the United States.

federal tax expense has been recognized as a result of the Tax Act, no deferred tax liabilities with respect to federal and state income taxes or foreign withholding taxes have been recognized.

federal tax expense has been recognized as a result of the Tax Cuts and Jobs Act of 2017, no deferred tax liabilities with respect to federal and state income taxes or foreign withholding taxes have been recognized.

We believe that our cash on hand in the United States, along with our Credit Facility and future domestic cash flows, are sufficient to satisfy our domestic liquidity requirements.

IFM Insurance Company

IFM Assurance Company (“IFM”) is a wholly-owned captive insurance company that we formed in 2015.

IFM began providing coverage to us as of January 1, 2015.

We had accelerated cash tax savings related to coverage provided by IFM of approximately $8 million in 2020, $6 million in 2019, and $7 million in 2018.

Share Repurchases

Effective December 18, 2019, our Board of Directors replaced our then-existing share repurchase program with a new share repurchase program under which we may repurchase up to $150.0 million of our common stock.

We repurchased shares under the 2019 Share Repurchase Program during the second quarter of 2020, as summarized below.

However, due to the market and business conditions arising from the Pandemic, in March 2020 we suspended further repurchases of our common stock.

At October 31, 2020, authorization for $144.9 million of repurchases remained under the 2019 Share Repurchase Program.

(in millions, except per share amounts) October 31, 2020

Total number of shares purchased 0.2

Average price paid per share $ 36.16

Total cash paid for share repurchases $ 5.1

Proceeds from Federal Energy Savings Performance Contracts

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We attempt to recover increased costs by increasing prices for our services, to the extent permitted by contracts and competition.

Regulatory Environment and Environmental Compliance

Our operations are subject to various federal, state, and/or local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, such as discharge into soil, water, and air, and the generation, handling, storage, transportation, and disposal of waste and hazardous substances.

In addition, from time to time we are involved in environmental matters at certain of our locations or in connection with our operations.

Historically, the cost of complying with environmental laws or resolving environmental issues relating to locations or operations in the United States or abroad has not had a material adverse effect on our financial position, results of operations, or cash flows.

We do not believe that the resolution of matters known at this time will be material.

Regulatory Environment

Our operations are subject to various federal, state, and/or local laws, rules, and regulations regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, as well as laws and regulations relating to, among other things, labor, wages, and health and safety matters.

Historically, the cost of complying with these laws, rules, and regulations has not had a material adverse effect on our financial position, results of operations, or cash flows.

In addition to revenues and operating profit, our management views operating cash flows as a good indicator of financial performance, because strong operating cash flows provide opportunities for growth both organically and through acquisitions.

Net cash provided by operating activities of continuing operations was $262.8 million during 2019 .

Net cash provided by operating activities of continuing operations was $457.4 million, which includes the deferral of approximately $101 million of payroll tax under the CARES Act, during 2020.

Operating cash flows primarily depend on:

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Net cash provided by operating activities of continuing operations $ 457.4 $ 262.8 $ 299.7

Net cash (used in) provided by operating activities of discontinued operations

Net cash provided by (used in) operating activities of discontinued operations 0.1 (0.1) 21.2

Net cash provided by operating activities 457.5 262.7 320.9

Net cash used in investing activities (27.5) (58.3) (48.1)

Net cash (used in) provided by financing activities

Net cash used in financing activities (94.1) (184.8) (295.8)

Operating Activities of Continuing Operations

Net cash provided by operating activities of continuing operations increased by $194.6 million during 2020, as compared to 2019.

The increase was primarily related to the timing of client receivable collections and deferred remittance of approximately $101 million of payroll taxes under the CARES Act, partially offset by the timing of vendor payments.

Net cash provided by operating activities of continuing operations decreased by $36.9 million during 2019, as compared to 2018.

The decrease was primarily related to the timing of client receivable collections, including a one-time settlement payment received from a client in 2018, and the absence of proceeds from the termination of interest rate swaps in 2018, partially offset by the timing of vendor payments.

Net cash provided by operating activities of continuing operations increased by $198.0 million during 2018 , as compared to 2017 .

The increase was primarily related to the timing of client receivable collections , including collections from acquired GCA accounts, as well as proceeds from the termination of interest rate swaps and a year-over-year reduction of required cash insurance deposits included in other assets.

This increase was partially offset by the timing of vendor payments.

Operating Activities of Discontinued Operations

Net cash provided by operating activities of discontinued operations was $0.1 million during 2020, as compared to net cash used in operating activities of discontinued operations of $0.1 million during 2019, a change of $0.2 million.

Net cash used in operating activities of discontinued operations was $0.1 million during 2019, as compared to net cash provided by operating activities of discontinued operations of $21.2 million during 2018, a change of $21.3 million, primarily attributable to an income tax refund received on a legal settlement during 2018.

Net cash provided by operating activities of discontinued operations was $21.2 million during 2018, as compared to net cash used in operating activities of discontinued operations of $96.1 million in 2017, a change of $117.3 million , primarily attributable to the payment of a $120.0 million legal settlement during 2017.

Investing Activities

Net cash used in investing activities decreased by $30.8 million during 2020, as compared to 2019.

The decrease was primarily related to lower additions to property, plant and equipment in 2020.

Additionally, the implementation of the new ERP system was temporarily suspended during 2020 due to the Pandemic.

Net cash used in investing activities increased by $10.2 million during 2019, as compared to 2018.

The increase was primarily related to higher additions to property, plant and equipment in 2019.

Net cash used in investing activities decreased by $823.7 million during 2018 , as compared to 2017 .

The decrease was primarily related to an $853.6 million year-over-year increase in cash paid, net of cash acquired, for acquisitions, partially offset by the absence of $35.5 million of cash proceeds from the sale of our Government Services business in 2017.

Financing Activities

Net cash used in financing activities decreased by $111.0 million during 2019 , as compared to 2018 , primarily due to higher repayments of our borrowings in 2018 .

Net cash used in financing activities was $295.8 million during 2018 , as compared to net cash provided by financing activities of $874.0 million during 2017 .

The change was primarily due to higher repayments of our borrowings in 2018, as compared to higher net borrowings in 2017 to fund the GCA acquisition.

Net cash used in financing activities decreased by $90.7 million during 2020, as compared to 2019, primarily due to lower repayments of our borrowings in 2020.

Net cash used in financing activities decreased by $111.0 million during 2019, as compared to 2018, primarily due to lower repayments of our borrowings in 2019.

On December 16, 2020, we announced a quarterly cash dividend of $0.190 per share on our common stock, payable on February 1, 2021.

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Contractual Obligations

(in millions)

Commitments Due By Period

Contractual Obligations

(in millions) Commitments Due By Period

Contractual Obligations 2021 2022-2023 2024-2025 Thereafter Total

Borrowings under term loan (1)

$ 120.0 $ 560.0 $ — $ — $ 680.0

Borrowings under line of credit (1)

— 45.3 — — 45.3

Fixed interest related to interest rate swaps (2)

11.2 5.0 — — 16.2

Operating leases and other similar commitments (3)

41.3 63.5 42.3 43.3 190.4

Service concession arrangements (4)

Capital leases (3)

21.2 30.9 30.9 9.0 92.0

Finance leases (3)

3.3 2.6 — — 5.9

Information technology service agreements (5)

36.5 31.1 1.0 — 68.6

Benefit obligations (6)

4.7 6.3 5.1 12.1 28.2

Total $ 238.2 $ 744.7 $ 79.3 $ 64.4 $ 1,126.6

(1) Borrowings under our term loan and line of credit are presented at face value.

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The interest payments on the borrowings under the Credit Facility will be determined based upon the average outstanding balance of our borrowings and the prevailing interest rate during that time.

(3) Reflects our contractual obligations to make future payments under non-cancelable operating leases, capital lease agreements, and other similar commitments for various facilities, vehicles, and other equipment.

(3) Reflects our contractual obligations to make future payments under non-cancelable operating leases, finance lease agreements, and other similar commitments for various facilities, vehicles, and other equipment.

See Note 4, “Leases,” for additional information on our lease arrangements.

(4) Represents leased location parking arrangements that meet the definition of service concession arrangements under Topic 853.

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At October 31, 2020, our self-insurance reserves, net of recoverables, were $434.8 million.

In general, these amounts are recorded on an undiscounted basis and are classified on the consolidated balance sheets as current or long-term based on the expected settlement date.

general, these amounts are recorded on an undiscounted basis and are classified on the Consolidated Balance Sheets as current or long-term based on the expected settlement date.

As these obligations do not have scheduled maturities, we are unable to make a reliable estimate of the amount or timing of cash that may be required to settle these matters.

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As we already have reserves on our books for the claims costs, these do not represent additional liabilities.

The bonds typically remain in force for one to five years and may include optional renewal periods.

The surety bonds typically remain in force for one to five years and may include optional renewal periods.

As of October 31, 2020, these letters of credit and surety bonds totaled $153.1 million and $632.9 million, respectively.

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As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

On November 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , and ASU 2017-10, Service Concession Arrangements (Topic 853):

Determining the Customer of the Operation Services .

Refer to Note 2, “Basis of Presentation and Significant Accounting Policies,” and Note 3, “Revenues,” in the Financial Statements for additional information regarding the impact of adopting these standards.

Additionally, refer to Note 2, “Basis of Presentation and Significant Accounting Policies,” for other standards adopted during the first quarter of 2019, none of which had a material impact on our consolidated financial statements.

There have been no other significant changes to our critical accounting policies and estimates.

There have been no significant changes to our critical accounting policies and estimates for the year ended October 31, 2020.

We believe the following critical accounting policies govern the more significant judgments and estimates used in the preparation of our Financial Statements.

Judgments and Uncertainties

Effect if Actual Results Differ from Assumptions

Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions

Valuation of Long-Lived Assets

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During the last three years, we have not made any changes in the accounting methodology used to evaluate the impairment of long-lived assets or to estimate the useful lives of our long-lived assets.

Additionally, we have not made any changes in the accounting methodology used to evaluate impairment of goodwill during the last three years, other than adopting ASU 2017-04, Intangibles—Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment in 2017.

Additionally, we have not made any changes in the accounting methodology used to evaluate impairment of goodwill during the last three years.

During the second quarter of 2020, given the general deterioration in economic and market conditions arising from the Pandemic, we identified a triggering event indicating possible impairment of goodwill and intangible assets.

For the three goodwill reporting units tested quantitatively, we estimated the fair value using a weighting of fair values derived from an income approach and a market approach.

Based on the evaluation performed, we determined that goodwill was impaired for each of the three goodwill reporting units evaluated and recognized a non-cash impairment charge totaling $163.8 million ($99.3 million related to Education, $55.5 million related to Aviation, and $9.0 million related to our U.K.

Technical Solutions business).

We also recognized intangible asset impairment charges of $5.6 million related to Aviation and $3.4 million related to our U.K.

Technical Solutions business.

We performed our annual goodwill impairment analysis on August 1, 2020 using a qualitative approach since there were no indicators of impairment subsequent to our quantitative analysis performed in the second quarter of 2020 as discussed above.

As a result of the qualitative analysis, we concluded that there were no further impairments.

During the third quarter of 2019, in connection with the reorganization of our Healthcare business, a goodwill impairment analysis was performed on the underlying reporting unit immediately before the reorganization, and we concluded that the estimated fair value of the underlying reporting unit substantially exceeded its carrying value immediately before the reorganization and that no further evaluation of impairment was necessary.

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In analyzing our other goodwill reporting units, we concluded that goodwill related to these other reporting units was not impaired.

During 2017, we recorded a $17.4 million impairment recovery related to the sale of our Government Services business to adjust the fair value of certain previously impaired assets to the valuation of the assets as implied by the agreed-upon sales price, less estimated costs to sell.

Judgments and Uncertainties

Effect if Actual Results Differ from Assumptions

Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions

Insurance Reserves

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We compare actual trends to expected trends and monitor claims development.

The specific case reserves estimated by the third-party administrators are provided to an actuary who assists us in projecting an actuarial estimate of the overall ultimate losses for our self-insured or high deductible programs, which includes the case reserves plus an actuarial estimate of reserves required for additional development, including IBNR Claims.

The projection includes the case reserves plus an actuarial estimate of reserves required for additional developments, including IBNR Claims.

We utilize the results of actuarial studies to estimate our insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years.

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The full extent of certain claims, especially workers’ compensation and general liability claims, may not be fully determined for several years.

In addition, if the reserves related to self-insurance or high deductible programs from acquired businesses are not adequate to cover damages resulting from future accidents or other incidents, we may be exposed to substantial losses arising from future development of the claims.

We have not made any changes in the accounting methodology used to establish our self-insurance liabilities during the past three years.

After analyzing the recent loss development patterns, comparing the loss development patterns against benchmarks, and applying actuarial projection methods to estimate the ultimate losses, we decreased our total reserves for known claims as well as our estimate of the loss amounts associated with IBNR Claims for prior years by $3.4 million during 2019.

During 2018 and 2017, we increased such reserves by $10.2 million and $22.0 million, respectively.

After analyzing recent loss development patterns, comparing the loss development patterns against benchmarks, and applying actuarial projection methods to estimate the ultimate losses, we decreased our total reserves for known claims as well as our estimate of the loss amounts associated with IBNR Claims by $36.6 million, $30.2 million of which relates to prior years, during 2020.

During 2019 and 2018, we decreased such reserves by $3.4 million and increased such reserves by $10.2 million, respectively.

It is possible that actual results could differ from recorded self-insurance liabilities.

A 10% change in our projected ultimate losses would have affected net income by approximately $32.4 million for 2020.

Judgments and Uncertainties

Effect if Actual Results Differ from Assumptions

Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions

Contingencies and Litigation

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Recent Accounting Pronouncements

Accounting Standard Update(s)

Effective Date/Method of Adoption

Codification Updates to SEC Sections—Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33-10532, “Disclosure Update and Simplification,” and Nos.

33-10231 and 33-10442, “Investment Company Reporting Modernization,” and Miscellaneous Updates.

The Financial Accounting Standards Board (“FASB”) issued this ASU in July 2019 to codify the SEC releases that clarify and improve the disclosure and presentation requirements of a variety of codification topics, thereby eliminating certain disclosure requirements that were redundant, duplicative, overlapping, outdated, or superseded.

We adopted the amendments under the SEC releases in the second quarter of 2019, as described in Note 2, “Basis of Presentation and Significant Accounting Policies,” in the Financial Statements.

The eliminated or amended disclosures did not have a material impact on our consolidated financial statements.

Effective upon issuance, applied prospectively.

Financial Instruments—Credit Losses (Topic 326):

Targeted Transition Relief.

This ASU, issued in May 2019, provides targeted transition relief allowing entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets previously measured at amortized cost (except held-to-maturity securities) using the fair value option.

Accounting Standard Update(s) Topic Summary Effective Date/

Method of Adoption

2020-04 Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting This ASU, issued in March 2020, provides optional expedients to assist with the discontinuance of the London Interbank Offered Rate (“LIBOR”).

The expedients allow companies to ease the potential accounting burden when modifying contracts and hedging relationships that use LIBOR as a reference rate, if certain criteria are met.

We are currently evaluating the impact of implementing this guidance on our financial statements.

This update will be adopted in conjunction with ASU 2016-13, as further described below.

This update can be adopted prospectively no later than December 1, 2022, with early adoption permitted.

2020-03 Codification Improvements to Financial Instruments This ASU, issued in March 2020, makes narrow-scope improvements to various financial instruments topics, including the new credit losses standard.

Certain amendments contained within this update were effective upon issuance and had no material impact on our financial statements.

The amendments related to ASU 2019-04 and ASU 2016-13 will be adopted in conjunction with ASU 2016-13, as described below.

2020-01 Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 This ASU, issued in January 2020, clarifies the interaction between Topic 321, Topic 323, and Topic 815.

The new guidance, among other things, states that a company should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the fair value measurement alternative immediately before applying or upon discontinuing the equity method.

While we are currently evaluating the impact of implementing this guidance on our financial statements, we do not expect adoption to have a material impact.

November 1, 2021

This update will be applied prospectively.

2019-12 Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes This ASU, issued in December 2019, removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences.

This ASU also amends other aspects of the guidance to help simplify and promote consistent application of Topic 740.

We are currently evaluating the impact of implementing this guidance on our financial statements.

November 1, 2021

The amendments have differing adoption methods including retrospectively, prospectively, and/or on a modified retrospective basis.

2019-04 Codification Improvements to Topic 326:

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and Topic 825:

Financial Instruments.

This ASU, issued in April 2019, provides narrow-scope amendments designed to assist in the application of the following updates and the related accounting standards:

Financial Instruments This ASU, issued in April 2019, provides narrow-scope amendments designed to assist in the application of the following updates and the related accounting standards:

(1) ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Statements ;

Measurement of Credit Losses on Financial Instruments;

(2) ASU 2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities;

(3) 2016-01, Financial Instruments—Overall (Subtopic 825-10):

(3) ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities.

We are currently evaluating the impact of implementing the guidance related to (1) and (3) on our financial statements.

We adopted the guidance related to (2) effective November 1, 2019 on a prospective basis without significant impact on our consolidated financial statements.

We do not expect the adoptions to have a material impact.

(1) The amendments related to ASU 2016-13 will be adopted in conjunction with that ASU, as further described below.

(3) Since we already adopted ASU 2016-01, the related amendments are effective for us on November 1, 2020 and will be applied using a modified-retrospective adoption approach with a cumulative-effect adjustment to retained earnings.

(2) We adopted this guidance effective November 1, 2019, on a prospective basis with no significant impact on our consolidated financial statements.

(3) Since we already adopted ASU 2016-01, the related amendments will be effective for us on November 1, 2020, and will be applied using a modified retrospective adoption approach with a cumulative-effect adjustment to retained earnings.

Accounting Standard Update(s) Topic Summary Effective Date/Method of Adoption

2018-18 Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606.

This ASU, issued in November 2018, provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606.

Clarifying the Interaction between Topic 808 and Topic 606 This ASU, issued in November 2018, provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606.

It specifically addresses when the participant is a customer in the context of a unit of account, adds unit of account guidance in Topic 808 to align with guidance in Topic 606, and precludes presenting the collaborative arrangement transaction together with revenue recognized under Topic 606 if the collaborative arrangement participant is not a customer.

We are currently evaluating the impact of implementing this guidance on our financial statements.

We do not expect adoption to have a material impact.

November 1, 2020

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2018-17 Consolidation (Topic 810):

Targeted Improvements to Related Party Guidance for Variable Interest Entities.

This ASU, issued in October 2018, provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interest.

We are currently evaluating the impact of implementing this guidance on our financial statements.

Targeted Improvements to Related Party Guidance for Variable Interest Entities This ASU, issued in October 2018, provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interest.

We do not expect adoption to have a material impact.

November 1, 2020

This update will be applied retrospectively.

Accounting Standard Update(s)

Effective Date/Method of Adoption

Derivatives and Hedging (Topic 815):

Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.

This ASU, issued in October 2018, adds the Overnight Index Swap (“OIS”) rate based on the SOFR (a swap rate based on the underlying overnight SOFR rate) as an eligible benchmark interest rate for purposes of applying hedge accounting.

SOFR is a volume-weighted median interest rate that is calculated daily based on overnight transactions from the prior day’s trading activity in specified segments of the U.S.

Treasury repo market.

SOFR was selected by the Alternative Reference Rates Committee as its preferred alternative reference rate to LIBOR.

We are currently evaluating the impact of implementing this guidance on our financial statements.

Since we early adopted ASU 2017-12, this update will be effective for us on November 1, 2020 on a prospective basis.

2018-15 Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

This ASU, issued in August 2018, aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

We are currently evaluating the impact of implementing this guidance on our financial statements.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract This ASU, issued in August 2018, aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

We do not expect adoption to have a material impact.

November 1, 2020

This update will be applied either prospectively or retrospectively.

Compensation—Retirement Benefits—General (Topic 715).

This ASU, issued in August 2018, modifies the disclosure requirements on company-sponsored defined benefit plans.

We are currently evaluating the impact of implementing this guidance on our financial statements.

This update will be applied prospectively to all implementation costs incurred after the date of adoption.

2018-14 Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20):

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans This ASU, issued in August 2018, modifies the disclosure requirements on company-sponsored defined benefit plans.

We do not expect adoption to have a material impact.

November 1, 2020

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2018-13 Fair Value Measurement (Topic 820):

Disclosure Framework.

This ASU, issued in August 2018, modifies the disclosure requirements on fair value measurements by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements.

We are currently evaluating the impact of implementing this guidance on our financial statements.

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement This ASU, issued in August 2018, modifies the disclosure requirements on fair value measurements by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements.

We do not expect adoption to have a material impact.

November 1, 2020

The amendments related to disclosure requirements within this update will be applied prospectively and the other amendments will be applied retrospectively.

Accounting Standard Update(s) Topic Summary Effective Date/Method of Adoption

2019-05 Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Statements.

This ASU, issued in June 2016, replaces the existing incurred loss impairment model with a methodology that incorporates all expected credit loss estimates, resulting in more timely recognition of losses.

We are currently evaluating the impact of implementing this guidance on our financial statements.

November 1, 2020

This standard will be applied using a modified retrospective adoption approach with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, except for certain provisions that are required to be applied prospectively.

Leases (Topic 842) .

ASU 2016-02 was issued in February 2016 to improve transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements.

Additional ASUs have since been issued which provide amended and additional guidance for the implementation of ASU 2016-02.

All related guidance has been codified into, and is now known as, ASC 842, Leases.

The anticipated effect of adoption is described in Note 2, “Basis of Presentation and Significant Accounting Policies,” in the Financial Statements.

Measurement of Credit Losses on Financial Instruments ASU 2016-13, issued in June 2016, replaces the existing guidance surrounding measurement and recognition of credit losses on financial assets measured at amortized cost, including trade receivables and investments in certain debt securities, by requiring recognition of an allowance for credit losses expected to be incurred over an asset’s life based on relevant information about past events, current conditions, and supportable forecasts impacting its ultimate collectibility.

This “expected loss” model will result in earlier recognition of credit losses than the current “as incurred” model, under which losses are recognized only upon occurrence of an event that gives rise to the incurrence of a probable loss.

ASU 2018-19 was issued in November 2018 and clarifies that receivables arising from operating leases are should be accounted for in accordance with Topic 842, Leases.

ASU 2019-11 was issued in November 2019 to clarify, improve, and amend certain aspects of ASU 2016-13, such as disclosures related to accrued interest receivables and the estimation of credit losses associated with financial assets secured by collateral.

ASU 2019-05 was issued in May 2019 to provide targeted transition relief allowing entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets previously measured at amortized cost (except held-to-maturity securities) using the fair value option.

We do not expect adoption to have a material impact.

November 1, 2020

We will adopt this guidance using a modified retrospective transition approach for leases existing at, or entered into after, the adoption date and will recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

This guidance will be applied using a modified retrospective adoption approach with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, except for certain provisions that are required to be applied prospectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis